Trade Secret Litigation on the Rise Against Laid Off Employees

Given all the employee layoffs and the many companies struggling to survive the bad economy, it is almost inevitable that we would be seeing an upswing in trade secret litigation against former employees. Law.com reported this week on the trend, stating that much of this litigation is over information that the employee is taking out the door on his or her laptop.

While a certain portion of these cases arise as the result of either intentional wrongdoing by the laid off employee or an attempt by employer to claim rights in a former employee's post-employment work product, the unfortunate reality is that many of trade secret disputes arise out of misunderstandings regarding what is and is not the former employer's confidential information and trade secrets.

As we wrote in a November, 2008 posting, agreements with employees and education are key to ensuring that such misunderstandings do not take place. An employer should communicate to its employees and advise its employees as to what information it considers to be confidential or to constitute a trade secret. If the employee walks out the door without a clear understanding as to what information the employer considers to be confidential or to constitute a trade secret, there is a reasonable likelihood that the employee's interpretation will ultimately differ from the employer's perspective, which may become a problem.

In addition to communicating its expectations regarding information, the employer should also communicate its expectations regarding its computers and IT system to its employees. Employees should receive during their employment a computer monitoring policy, which advises them on their rights to privacy with respect to data on the computer as well as the employer's expectations about the employee's computer more generally. Both parties should be very clear as to who does and doesn't own the data on an employer's computers and IT system, so that there is no room for misunderstanding.

Finally, the employer should negotiate a severance agreement with laid-off employees, which reaffirms what information the employer considers to constitute confidential information and trade secrets and what obligations the employee has with respect to such information. Of course, the employer should also gather up the employee's computer(s) issued by the employer and digital files prior to the employee walking out the door.

While it is true that not all trade secret disputes arise from misunderstandings, it makes sense for employers faced with potential layoffs to take steps to limit their potential trade secret disclosure liability with respect to their employees by ensuring to the extent possible that there is no misunderstanding as to what information that the employer expects to be protected. Such efforts can pay off in terms of both maintaining trade secrets and saving money on litigation costs. Also, they may help to preserve employee morale in those employees left behind after a layoff. All in all, these efforts can be a win-win for not just the employer but also the laid-off employees.